In 2005, new premium sales of critical illness insurance slowed more dramatically than ever. The number of policies sold, another indicator of the health of an insurance market, also dipped for the first time. The result of premium increases? Yes, according to some major players.
There was one per cent growth in new premium sales of critical illness insurance (CI) in Canada in 2005 over 2004. This was revealed in the latest confidential LIMRA International report of CI sales in Canada in 2005 obtained by The Insurance Journal in April.
This was a marked decrease from 2004, when new premium sales of CI insurance were up 11% over 2003. This was also the weakest gain in the sale of CI insurance in terms of premiums since 1999.
Since CI insurance was introduced to the Canadian market in the mid 1990s, the industry has come to expect steady double-digit growth in sales of this product.
Two of the three biggest players in terms of market share have acknowledged that sales of CI policies fell in 2005 and that premium hikes were the cause. According to the LIMRA report, half of all players did see an increase in sales between 2004 and 2005. Speaking anonymously, an experienced market analyst hypothesized that companies with the best sales in 2005 were generally those that were slow to increase their rates – a hypothesis that was neither confirmed nor denied by the insurance companies contacted.
Joe Wellman, assistant vice-president, living benefits, at Canada Life, observed a “stabilization of sales” after the announcement of a premium increase caused a stampede toward the product in late 2004 and the first quarter of 2005 before the rate hikes took place. According to the confidential LIMRA report, Canada Life saw its new premium sales of CI insurance decrease 14% last year compared to 2004.
David Baker, director, individual health insurance, at Sun Life Financial observed the same phenomenon. “Some of the early gains in 2005 were a carry-over of sales prior to the price increase. And when the price increase took effect, there was a slowdown. That is a natural event whenever you get an increase in price.” At Sun Life, premium sales fell three per cent according to the confidential LIMRA report.
AIG Life Canada saw the largest decrease with a 50% reduction in premiums sold between 2004 and 2005, according to LIMRA.
Among other companies that also saw a decline in sales, according to this report, Industrial Alliance saw a 10% decrease in sales, and Desjardins Financial Security (DFS) witnessed a three per cent decline in 2005 from the previous year.
Other major players were spared by this trend, however, reporting an increase in new premium sales. At the top of this list, Empire Life posted growth of 52%, closely followed by RBC Insurance, which saw a 44% rise in new premiums. Manulife Financial and Great-West Life reported new premium growth of 12% and 18% respectively.
Decline in policy sales
The number of policies sold is another sign that the market is cooling.
This year, the tide turned for the first time, with the industry selling three per cent fewer policies than in 2004. Another LIMRA report revealed that as at December 31, 2004, the number of policies sold was up three per cent over 2003. Therefore, this was the first decline in the number of policies sold since 1999.
AIG was again the insurer with the weakest results, with policy sales down 47% between 2004 and 2005, according to the LIMRA report.
Canada Life and Great-West saw the number of policies sold fall by 17% and 5% respectively between 2004 and 2005, according to LIMRA.
Manulife reported a nine per cent decrease in the number of policies sold between 2004 and 2005. Sun Life saw a six per cent decrease in policy sales during this same period according to the report and Industrial Alliance saw a 14% decrease in the number of policies sold.
But LIMRA reports that, here again, some players fared better than others. This was the case for both RBC and DFS, which reported increases in the number of policies sold of 33% and 10% respectively.
A comparison of figures related to policy sales and new premiums reveals that some companies saw a decline in the sale of new policies without seeing a drop in total premiums sold in 2005.
This was the case for Manulife, whose policy sales went down while their premiums sold went up. The same was true for Great-West and Empire.
According to many analysts, this discrepancy between the number of policies sold and the total premiums in 2005 can be explained by the 15-20% average price hikes in 2004. Even though fewer policies were sold, the total premiums suffered very little since every new policy sold cost more than an equivalent policy sold before the increase.
According to LIMRA, RBC was the only player to see a significant increase in policy sales (33%) while at the same time seeing its total new premium sales shoot up.
ROP sells policies
While sales may have fallen, policies with return of premium (ROP) riders inflated the results of some insurers as at December 31, 2005.
AIG, for example, which turned in such poor performances last year, nevertheless saw the number of CI policies with ROP grow by 111% between 2004 and 2005, according to the LIMRA report.
RBC saw a 41% increase in the sale of ROP policies during this same period, and at Standard Life Canada, the increase was 18%.
Industrial Alliance received no benefit from the tail wind generated by ROP refunds, however. In 2005, it sold 17% fewer policies offering this rider than in 2004.
Among insurers not included among the ten biggest players in the CI market, also saw its ROP sales decline: down 23% in 2005 compared to 2004, according to LIMRA. This company also saw its premium sales fall 18% during the same period.
Mr. Wellman believes that ROP refunds help to inflate product sales. At the same time it increased premiums, Canada Life added a range of ROP riders to its CI product, thereby creating new tools to attract a younger clientele. “We have a ten-year ROP, which returns a portion of the premium paid after ten years. There are individuals who enjoy ROP. It rewards them for remaining healthy,” notes Mr. Wellman.
Mr. Baker believes that ROP refunds make insurance more attractive, despite the higher price. “When they see the price, a lot of customers think that if nothing happens to them, they can get all of their money back,” he observes.
The popularity of ROP is so strong that Sun Life felt compelled to add new options to its product last January. “We brought in two options: 100% available after 15 years and 100% at age 65. Those are the two most popular features in the marketplace,” notes Mr. Baker. He also expects these ROP enhancements to boost sales in 2006.
Catherine Montminy, head of product development, living benefits, at La Capitale, estimates that almost 90% of that company’s total sales of CI policies include a ROP rider.
Still, she notes that there was a slight increase in the sale of CI policies without ROP, probably due to the price hike. “Return of premium is actually a costly addition to a critical illness insurance policy.”
A somewhat different opinion is expressed by Michael Byrne, assistant vice-president of marketing, living benefits, at Great-West, who believes the industry should be using other arguments to sell CI.
“Customers are attracted to ROP, but as an industry, we have to make sure that we don’t focus just on the ROP, because CI is not an investment product,” he says.
Mr. Byrne thinks it is time to begin selling CI based primarily on the financial needs of people who fall ill.
Focus on training
Premium increases have probably hurt CI, but the market is also facing other challenges, in particular, the lack of advisor training, which is seen as having limited the growth in sales since the product was first introduced to the Canadian market.
Among the trends to emerge in 2006, the training and education of advisors is at the top of the list for insurers, according to the sources contacted.
Sean Long, who recently joined DFS as individual health products specialist, has been mandated to raise the profile of this company’s health products outside Quebec. Training will be vital, notes Mr. Long.
DFS is banking heavily on its living benefits product line and is prepared to invest in education, according to Mr. Long. But brokers will not be the only ones to benefit from this training. “We will be holding more public meetings and forums,” he says.
John Parker, assistant vice-president, marketing, at Manulife, agrees the industry will have to roll up its sleeves and start investing in education and training for brokers. “We have to try to grow the market. Every company is going to have different strategies, but I think that many will focus on education and awareness,” he says.
Another believer in the need for education is Mr. Baker of Sun Life. Since the industry relies primarily on the brokerage network to distribute its critical illness products, it will have to focus on training the people dealing with clients on the front lines.
One indication that this training is lacking is that advisors have not yet made the public sufficiently aware of this product. “The public is still not educated about CI or the true cost of health coverage in general,” he laments.
It is often the advisors themselves who complain about the lack of training offered by insurance companies. And Great-West shares the brokers’ view on this subject.
According to Mr. Byrne, the company really wants to base CI sales on the fundamental needs of clients, “not just on access to foreign treatment or ROP.” Only well-trained advisors can successfully pass this message on to clients, he says. Moreover, Great-West offers training across the country through its 26 centres and 70 specialists.
Canada Life, its sister company, offers bimonthly seminars to its MGAs and even holds “critical illness clinics” for doctors, agents, underwriters, and marketing personnel, says Mr. Wellman.
Ms. Montminy also agrees with advisors who say they lack training, but she wonders who should be responsible for providing that training.
“Everyone talks about the need for training. But is it really up to insurers to provide training to independent advisors who sell for several companies?” she asks.
However, La Capitale has not closed the door on training. Ms. Montminy adds that the launch of new products this fall will be supported by a period of specialized training.
Critical illness insurance for children is still the focus of much attention. DFS, for example, launched its product on April 24.
The children’s product covers the 25 illnesses covered for adults as well as the serious complications of four infectious diseases (West Nile Virus, Lyme Disease, E. coli, and flesh-eating bacteria). It also offers protection against three early childhood diseases: cystic fibrosis, autism, and Rett syndrome. Coverage for type 1 diabetes, cerebral palsy, and muscular dystrophy is also available.
The services of Best Doctors, a system for referring the top specialists in their field, is also provided.
When they reach adulthood, the insured children will have the option of either receiving a tax-free return of premiums or keeping the policy in force. The policy also guarantees a premium refund in the event of death.
La Capitale will launch two new CI products this fall, including one for children. “In 2006, we want to reposition our entire critical illness product line, since we’ve only got a T-75. We’ve observed that people are selling more T-100s with protection in case of lack of autonomy,” explains Ms. Montminy.
Other innovations might very well include the introduction of more products without guaranteed premiums. Although nobody wished to commit themselves on this subject, most of the insurers interviewed remain open to this possibility.
Products with non-guaranteed premiums make it possible to offer CI at lower cost, but the premiums paid by the insured increase over time. Many advisors do not favour this type of product.
Among the insurers whose results for the Canadian CI market were reported by LIMRA to have changed the most between 2004 and 2005, AIG had not responded to our request for an interview at press time. In addition, RBC declined our invitation to participate in this report.